Crisis Slowing Russia's Internet Market Growth, but Giving Impetus

It is unlikely that the Russian segment of the Internet, often referred to as the Runet, will escape the ongoing economic crisis and its market growth may halve in 2015, experts say. Officials, however, point to initiatives of companies in fighting difficulties and the high potential of the industry, which is expected to recover by 2018.

The volume of content and services of the Russian Internet stood at 1.094 trillion rubles in 2014, and the market of electronic payments amounted to 476 billion rubles. In total, these sectors of the Internet market accounted for 2.2 percent of the country's gross domestic product (GDP), the Russian Association for Electronic Communications (RAEC) and the Higher School of Economics said in late October in joint research.

According to the Public Opinion Foundation, the Runet's audience totaled 77.5 million people aged over 18 years, or 66 percent of the country's population, including 62 million people who surf the web daily.

"The Runet felt the influence of 'the general economic crisis' already in the fourth quarter 2014 — first quarter 2015. According to forecasts of most of experts, the bottom of the crisis will be seen at the end of 2015 or early 2016. The industry will return to pre-crisis growth rates no sooner than at the end of 2017," RAEC director Sergei Plugotarenko said in a statement.

"Experts see the impact of the crisis on Internet markets in 2014 as rather bad. Views of its influence on individual segments vary insignificantly despite their financial results," Plugotarenko said.

"When we say that the Runet is feeling the crisis, it means changes in growth rates of markets, not a fall in absolute figures."

Finam analyst Leonid Delitsyn told the PRIME news agency that the Internet market will not stop growing in rubles in 2015, since web users have become more sophisticated and now make purchases online. Electronic commerce, including tourism, but excluding electronic payments, accounts for 75 percent of the so-called content and services market and serves as a locomotive for the whole Internet.

"If the macroeconomic situation were more stable, we could expect growth of 25–30 percent for ruble-denominated revenue in the upcoming several years. Prospects, however, are not so bright. The main obstacle for growth is a high ratio of imported consumer goods in Russian e-stores with a lack of promise for a rapid rise in consumer incomes," Delitsyn said.

"I would halve growth rates in 2015 to 10–15 percent. Internet giant Mail.Ru Group reported 8.9 percent growth in January–September as compared to last year. Mail.Ru Group is a diversified company working on several markets and its results mirror the Runet's health in general."

The first sign of the crisis was stagnation of the media advertising market, seen in July-September 2014.

Meanwhile, Deputy Communications Minister Alexei Volin said the current turmoil is "a wonderful chance for further progress in the sphere" and the bulk of market participants continued developing and offering new products.

"The industry has not given up and abandoned new targets and ideas, but started doing things that are ultimately important during the crisis. They cut expenses — they reduced salaries, refused new recruitments and curbed perks — and focused on new products. These were correct and necessary actions, which enabled the industry to raise its weight in the whole economy," Volin said in the RAEC report.

The Runet's volume stood at 1.1 trillion rubles in 2013, including 750 billion rubles of content and services and 350 billion rubles of electronic payments. The industry grew 36 percent in 2014.

Spheres linked to the replacement of imports and security of personal data also create additional opportunities for the IT industry, as demand for Russian services will only grow. "The Internet starts pushing up other branches of the economy, which we call Internet-dependent ones and their number is growing," the official said.

The volume of Internet-dependent markets, or markets that one way or another depend on the Internet, amounted to 11.8 trillion rubles in 2014, or 16 percent of the country's GDP.

The research showed that the digital content market is rising thanks to an emerging trend, widespread mostly among the young, of consumption of legal pay content. The trendsetters here are the U.S. giants Apple and Google, as well as online cinemas, which are becoming more and more popular.